This company, which primarily produces and distributes dog and cats food products, has been grouped into pet food& supplies sector in pets industry.
It seems that the demand for pet food and supplies has been strong and continuingly growing in the past several years as indicated by increasing sales volume of pet food (5-9% annual growth) and supplies (3-4% annual growth) of typical companies in this sector. Accompanied with increase in pet food sales volume, revenue of companies in this sector has also been driven by sales’ shifting to higher price products.
Most of companies’ margins have been improved as a result of increased revenue, saving of costs, and sales’ shifting to higher margin products. The typical gross margin for pet food company is about 46% (including depreciation and freight), SG&A is about 23%, and operating margin is about 23% in 2018. The typical enterprise cash flow/sales ratio is 15%.
The typical enterprise price/EBI (adjusted with tax shield) ratio is 37 (pet food) and 27 (pet supplies).
It seems that the demand for pet food of this company has been increasing fast since 2016 as indicated by the fast increase in the sales volume (5-9% annually) and increase in price.
Fiscal 2017 compared with fiscal 2016
Net revenue increased about 10% due to increase of about 5% in sales volume and increase of about 4% in product mix. Price was flat.
Fiscal 2016 compared with fiscal 2015
Net revenue increased 12% due to increase of about 9% in sales volume, increase of about 1.7% in price.
Its gross margin (including depreciation and freight) was improved from about 41% to 46% since 2015 as a result of improved distribution efficiency, product mixing, and price increase. Its SG&A as percentage of sales up to 23% and its operating margin up to 23% in 2018.
Stock performance
This company was acquired at $40 per share implying an enterprise price/cash flow ratio of 44 or higher. We think that its stock is being relatively slightly overvalued compared with its peer in pet supplies industry but fairly valued compared its peer – Freshpet.
